Types of Statements in a Contract
Is there any contractual claim which can be made by Angela from Jessica as when she sold her business she suggested that the profits were $10000 but they actually turned out to be only $2000.
There are several correspondences which take place between the parties before a contract between them is formed. In such correspondences many statements are discussed which can be distinguished as terms or the contract and a representation. When contract terms are breached the parties are provided the right to claim damages or rescind the contract according to the rules of Bettini v Gye 1876 QBD 183. On the other hand when a false representation has been made a party can claim misrepresentation which makes the contract voidable at the option of the innocent party according to the rules of Bisset v Wilkinson [1927] AC 177. According to Oscar Chess v Williams [1957] 1 WLR 370 a representation is a statement which has been discussed by the party before the contract is formed and is not a term of the contract.
In Esso Petroleum v Mardon [1976] QB 801 the judges held that when a representation which has been made by the party is false relating to a fact but not an existing law or a mere opinion the first element of establishes misrepresentation will be satisfied.
In Horsfall v Thomas [1862] 1 H&C 90 the judges stated that when a representation which has been made by the party is false relating to a fact but not an existing law or a mere opinion and it has been used by the party to form a contractual relationship the second element of misrepresentation will also be satisfied.
Misrepresentation of are three kinds, innocent, negligent and fraudulent. When the misrepresentation is innocent the parties are discharged from their contractual liability, when the misrepresentation is negligent or fraudulent the injure person can claim compensation and also claim recession in form of a remedy. A person would be deemed to have fraudulently misrepresented a statement of fact when they ought to know the truth behind the statement as found by the judges in the landmark case of Derry v Peek [1889] UKHL 1.
The question that a statement represented is a mere opinion or an actual fact relies on specific legal provisions of common law. Generally when a party claims that they had only made an opinion and not a statement of fact but they are in a position to know the truth behind such opinion they are regarded to have made a statement of fact by the court of law as it was done in the case of Smith v Land & House Property Corp (1884) 28 Ch D 7
Misrepresentation
The question whether a statement represented has induced or made a person to get into a contract is also addressed by special provisions of common law. Generally when a person has been given an opportunity to check the validity of a statement and has verified information which had been provided by the representor than they have no right to claim inducement or reliance in relation to the statement. However where such information is not verified reasonably than it would give a right to the person to claim reliance or inducement with respect to the statement as done in Redgrave v Hurd (1881) 20 Ch D 1.
There are a few correspondences which take place between Angela and Jessica before a contract between them is formed. In such correspondences many statements are discussed which can be distinguished as terms or the contract and a representation and one of the statement was that the profits were $10000. This is not a term of a contract which has been formed between them. Thus a case of misrepresentation can be filed where the statement represented has turned out to be false and the profits are only $2000. The rules discussed above stipulate that there are two ways elements of misrepresentation. The first element is that of a “false statement of fact”. The statement in relation to the profit of the business is neither a statement of opinion nor a statement of law. This finding is based in the fact that Jessica had knowledge about the profits which the business made being its owner. Further she had provided a chance to Angela to verify the financial accounts. She handed her a large box which contained account information. Angela only looked into information on the year 2007 and relied on it to make the contract. Although according to the general rule when a person has been given an opportunity to check the validity of a statement and has verified information which had been provided by the representor than they have no right to claim inducement or reliance in relation to the statement, Angela did not check the accounts of the following years. Here she can sue the laws which have been set out in the case of Redgrave v Hurd as base her claim on the fact that she had not reviewed all accounting documents. Thus Angela can have a successful misrepresentation case against Jessica. The remedy of misrepresentation relies on the type of misrepresentation which has been found. Here Jessica would be deemed to have fraudulently misrepresented the statement of fact related to profit as she ought to know the truth behind the statement. Thus Angela can claim recession and compensation.
Elements of Misrepresentation
Angela can claim recession and compensation for fraudulent Misrepresentation
- Whether a duty of care is present on the part of Acne Cola towards Sandra Smith and her husband at common law and statutory provisions.
- Whether such duty has been breached at common law and statutory provisions
- If the duty is breached has is resulted in the injury
- If negligence is established what damages can the family claim from Acne Cola
Negligence
Negligence is a failure to take reasonable care which results in an injury according to section 5 of the Civil Liability Act 2002 (NSW)
As stated via the case of Grant v Australian Knitting Mills HCA 35 (1933) negligence takes place when a party does not take reasonable precautions to avoid a foreseeable injury to the other party.
Negligence has three elements
- Duty of care
- Breach of duty of care
- Causation
Duty of care
Section 5B of the Act provides rules for determining the duty of care. According to the section a person will be have a duty of care if:
- The risk is reasonably foreseeable
- There is sufficient probability of the risk occurring
- Additional precautions would be taken by a prudent person being present in the same position
At common law there are few criteria for analyzing the element
- Donohue v Stevenson [1932] AC 562 (Foreseeability test and neighbour principle)-
Facts- Plaintiff consumed a beer which had an insect. The consumption made the plaintiff sick. He filed a case against the manufacturer. Manufacturer argued that there is no contact and no remedy. The court stated that when a risk to another person can be foreseen due to one’s act or omission a duty of care is identified. The manufacturer had to provided damages to the plaintiff.
- Caparo Industries pIc v Dickman [1990] 2 AC 605 (Caparo test or proximity test)
The test stated that where there is proximity with respect to the parties to a claim a duty of care will be present.
Section 5B(c) of the Act states that the where additional precautions are to be taken by a prudent person being present in the same position they need to take into account
- The chance of the injury taking place where the precautions are not taken (probability)
- The damages such injury causes is of a significant extent (seriousness)
- The effort which needs to be taken to consider the precautions (burden)
- The need of the activity which caused harm (social utility)
At common law an objective criteria is deployed for analyzing the element
The objective criterion has been deployed in the case of Bugden v Rogers [1993] NSWCA 49. The objective test imposes a reasonable person in the position of the defendant and then compares if such reasonable person would have taken more care than the plaintiff or not in the situation. If the reasonable person does so the duty is breached.
Section 5D of the Act helps to determine factual causation in a situation. According to the section
- The primary cause of the harm suffered by the person is the negligence of the other person (Factual Causation)
- It would be appropriate for the courts to extend the liability of the defendant to the injury sustained by the plaintiff (Scope of liability)
At common law a “But for” is deployed for analyzing the element
The test had been given out by the case of Barnett v Chelsea & Kensington Hospital 1969] 1 QB 428. The causation element would be established where the plaintiff would not be injured but for the negligence.
Damages are paid in case of negligence to compensate the party who has suffered an injury wither physically, mentally or in relation to economic losses. However a negligent action can result in a chain of incidents which may cause various forms of losses to the plaintiff or people associated with them. However, all such damages cannot be claimed by the plaintiff as they may be “too remote” for the defendant to foresee. The principles were used in the case of The Wagon Mound no 1 [1961] AC 388.
Negligence
Form the above discussion of law it has been derived that there are three elements which constitute a case of negligence. Therefore if all such elements are present in the present case then a claim for damages can be made.
The Donoghue v Stevenson case when applied in the scenario makes it clear that the Acne will have a duty of care to the husband. This is because in the same way in the present case also the husband consumed a drink which had an cockroach. The consumption made the husband sick. Here also Acne can argue that there is no contact and no remedy. The court in this case also will state that when a risk to another person can be foreseen due to one’s act or omission a duty of care is identified. Thus Acne would be owing a duty to the husband. Further the risk is reasonably foreseeable and there is sufficient probability of the risk occurring so a duty of care is also there according to the Act.
Acne here has failed to take reasonable care and while doing so have breached the duty. This is because a reasonable person in the position of Acne would have taken more care than the plaintiff or not in the situation. In addition the chance of the injury taking place where the precautions are not taken were high, the damages such injury causes is of a significant extent, there is not much effort which needs to be taken to consider the precautions and consuming cola is a regular social activity and thus the duty had been breached as per the Act as well.
The causation element would be established where the plaintiff would not be injured but for the negligence. The husband would not be injured where there was no cockroach in the drink. Thus causation is present.
The family has incurred medical cost, the husband has faced physical distress and the Sandra and the husband has lost employment. The husband’s mother had suffered a Phobia. Here the only damages which can be claimed as per the remoteness test would be that of medical cost, physical distress and lost employment as they are reasonably foreseeable. The phobia caused to the mother cannot be claimed as it cannot be foreseen reasonably.
Conclusion
Acne will be liable for the damages incurred by Sandra and her husband
References
Barnett v Chelsea & Kensington Hospital 1969] 1 QB 428
Bettini v Gye 1876 QBD 183
Bisset v Wilkinson [1927] AC 177.
Bugden v Rogers [1993] NSWCA 49
Caparo Industries pIc v Dickman [1990] 2 AC 605
Civil Liability Act 2002 (NSW)
Derry v Peek [1889] UKHL 1.
Donohue v Stevenson [1932] AC 562
Esso Petroleum v Mardon [1976] QB 801
Grant v Australian Knitting Mills HCA 35 (1933)
Horsfall v Thomas [1862] 1 H&C 90
Oscar Chess v Williams [1957] 1 WLR 370
Redgrave v Hurd (1881) 20 Ch D 1.
Smith v Land & House Property Corp (1884) 28 Ch D 7
The Wagon Mound no 1 [1961] AC 388.
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